Schroders Quickview: China work report confirms easing bias, but growth will still slow

China’s latest government work report saw a bias towards further stimulus but runs the risk of exacerbating existing imbalances.

09 Mar 2016

Craig Botham

Emerging Markets Economist

30 MinutesUnstructured Learning Time

What does the report tell us?

Chinese Premier Li Keqiang delivered the annual Government Work Report at the opening of the National People’s Congress on Saturday.

This was the longest such report on record and it offered few surprises, given the clear telegraphing in previous months.

There is an evident bias towards stimulus with an increase in the money supply growth target, the fiscal deficit target, and only a modest reduction in the economic growth target, which was announced as 6.5-7% for 2016.

Should China target lower growth?

Though the government is somewhat constrained in its choice of growth targets, given its promise to double incomes in 2020 from 2010 levels, we would actually prefer a lower target.

We are of the view that the level of stimulus needed to hit a level of growth in excess of 6.5% will only exacerbate existing imbalances.

In particular, China’s debt problem will worsen, and the risk and impact of a financial crisis will both rise.

A growth target of 5-6%, though it was never going to be announced, would have made us much more comfortable.

In addition to the increased money growth and fiscal deficit targets (both are lower than was realised last year, but exceed last year’s targets, and we expect similar overshooting this year), a large increase in local government bond issuance was announced, nearly double the RMB 600 billion quota of last year.

Will the targets ultimately support Chinese growth?

In sum, this all sounds very growth supportive, but we note also the planned reductions in spare capacity.

This is likely to be growth negative, and so much of the increased stimulus will be channelled into offsetting that drag on growth – RMB 100 billion funding support has been announced for potential unemployment increases.

In short, we do not expect an acceleration in growth on the back of what has been announced.

Important Information

This website is for UK professional financial advisers only. Retail clients should go to the Investor Centre You should not rely on the views and information on the site when making investment decisions.

Views and Opinions are Schroders' only and may change.

Schroders uses all reasonable skill and care to ensure information is accurate. However, errors or omissions may occur that are outside of our control, such as unauthorised access to this internet service, or the effects of machine, software or operator error or malfunction in connection with data transmission. Information is accurate only on the date shown on the page it appears and we advise that you contact us before you rely on any information to confirm its accuracy.

We use cookies to help improve your experience with this website. By using this site, you agree that we may store and access cookies on your device. Cookies are small text files, downloaded onto your device, that tell us which pages you’ve visited, when and what your technology preferences are. To find out more about the cookies that we use, their purpose and how you can manage them, please visit: How we use Cookies.